Euro zone retail sales weaken further as recession fears grow

Retail sales across the euro area, a key measure of consumer demand, fell again in September, raising the prospect of a Europe-wide recession.

The European Union’s statistics office Eurostat said retail sales in the 20 countries sharing the euro fell 0.3 per cent month-on-month and by 2.9 per cent year-on-year in September.

The monthly drop was driven by a sharp decline in physical and online sales of non-food products, which were both 1.9 per cent lower than in August. Automotive fuel sales were also down 0.9 per cent.

Among member states for which data are available, the largest yearly decreases in the total retail trade volume were registered in Slovenia (-17 per cent), Belgium (-8.4 per cent) and Hungary (-7.3 per cent).

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The highest increases were recorded in Spain (+7.5 per cent), Cyprus (+4.1 per cent) and Luxembourg (+2.6 per cent). Ireland’s retail volumes were up 1.4 per cent year-on-year in September but were down 0.7 per cent on a monthly basis.

Coming in the wake of last week’s GDP (gross domestic product) data, which showed the euro zone economy contracted by 0.1 per cent in the third quarter, the latest retail numbers further highlight the weakening economic environment in Europe.

They suggest Europe’s economy is being hampered by high interest rates, the ongoing cost-of-living crisis and weaker demand from the global economy.

They have also led to speculation that the euro zone may dip into a technical recession (back-to-back quarters of negative growth) in the second half of 2023.

The Republic experienced the largest drop in GDP of any euro zone country in the third quarter and has seen unemployment rise for three consecutive months.

Meanwhile, rapid wage growth in the euro zone could keep inflation elevated longer and the European Central Bank (ECB) should hold interest rates at or near record highs through next year to extinguish price pressures, the International Monetary Fund said on Wednesday.

The ECB broke a streak of ten straight rate hikes last month, fuelling market expectations that its next move will be a cut, possibly as soon as April, with a total of 90 basis points of reductions priced in by the close of next year.

Pushing back on early rate cut bets, Alfred Kammer, the head of the IMF’s European Department, argued that the ECB’s deposit rate should stay close to its record high 4 per cent level through all of next year.

“Monetary policy is appropriately tight and needs to remain so in 2024,” Mr Kammer told a news conference. “For all intents and purposes, (the deposit rate) should be held at that level or close to that level throughout 2024.” Additional reporting: Reuters